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Monday, September 16, 2013

A subtle shift in German policy on banking union?

With talk of the upcoming German elections dominating over the weekend, a potentially important yet subtle shift for post-German election policy on banking union may have received less coverage than it ought to have.

Reuters reported on Saturday that Germany is working on plans to create a single eurozone bank resolution mechanism (SRM) within the EU framework without the need for changing the EU’s treaties – something the German government had previously insisted was necessary because it deemed the Commission had no legal base for the proposal to give itself the power to order banks to be wound down. Bloomberg followed this up with a report suggesting a tentative agreement had been struck with the Commission which would see the new resolution fund cover only the largest eurozone banks, thereby exempting the German savings banks (and their large pool of deposits).

German Finance Ministry spokesman Martin Kotthaus has since played down any German proposal, but stressed that "very many other member states" have also raised similar concerns to those of Germany.

It remains early days then, with lots of negotiating still to go but this could have important implications for the eurozone and the UK which are worth exploring.

What could this mean for the eurozone?

As we have noted, Germany essentially had two choices following its stark rebuke of the Commission’s SRM plan – either work within the framework to alter it or propose an intergovernmental alternative (a similar ad-hoc set up to the temporary bailout fund EFSF). Judging from these developments it seems to have gone for the former, on the surface this is positive for the eurozone since any SRM enshrined in EU law will look more lasting and solid.

That said, the German plan (if there is one) would clearly involve further watering down a mechanism which already looked woefully short of what was needed to help shore up the eurozone banking sector. The crisis has clearly shown that smaller parts of the banking sector can cause significant problems (see Spanish cajas).

The Commission is likely to have less responsibility but it remains unclear where the power will lie. Creating a new institution is impossible without treaty change while using existing ones for eurozone-specific tasks creates serious questions about the single market. The fundamental question of who decides to wind down a bank in crisis remains unresolved.

Even if the above issue is settled, oversight of the banking sector would still look fragmented with many different institutional layers including – national regulators and supervisors, the ECB and the new SRM as well as possibly the ESM. Furthermore, the Council of Ministers, European Parliament and national parliaments will all have a role in decision making and/or accountability.

Other problems, including the size of any resolution fund, remain – as we have pointed out. Last week’s legal opinion from the Council of Minister's legal service noted that the national budgetary implications of an EU bank resolution mechanism meant that the Commission's proposed legal base might need to be rethought.

What does this mean for the UK and other non-eurozone countries?

How the SRM is established could well set the tone for future eurozone integration, therefore ensuring it does not alter the dynamic of the EU to serve eurozone ends using a single market legal base is important for both the UK and other non-euro countries.

That said, a purely intergovernmental legal arrangement, outside the EU treaty, could reduce the UK's ability to influence the outcome still further. The upshot being that there probably needs to be a treaty change to ensure eurozone crisis resolution is kept distinct from and yet compatible with the single market.

Despite this latest attempt to avoid treaty change, Finland has also voiced concerns about the legal base for the SRM, while Germany still has concerns about the separation between the single supervisor function and monetary policy at the ECB - suggesting treaty change as solution. So, both are still keen on shoring up the banking union via treaty change in the not too distant future.

Meanwhile, the whole discussion over the extent to which the treaties can be stretched to help solve the eurozone crisis once again reminds us of the inherent tensions and structural flaws in the current eurozone/EU setup. Even if not done through the banking union, this will have to be settled at some point.

2 comments:

Jesper
said...

Whoever controls/regulates the banks has a lot of control over the amount of credit banks can extend. Handing over that power to an EU-institution means transferring out a LOT of power from nations to supra-national institutions.

EU-crats will of course love to have this power transferred away from nations and they prefer to have it done without such niceties as treaty-changes.

Availability and price of credit should be affected by local conditions, centralising that power to have them standardised is a sure way of ensuring larger credit losses and might be a violation of the treaties. EU is defined as a market economy, if credit availability and price is decided centrally then it might be argued that the EU is a centrally planned economy.

Also, having looked at how Ireland handles its mortgage-situation makes me doubt that a banking-union could ever work without removing legislative rights from national legislators...

Perhaps there are some people stupid enough to believe that Germany -- or any other EUSSR prisoner nation -- is going to seek to prevent this banking "union."

The truth is that the centralization of control over ALL the world's banks by a criminal cartel of global banksters is an accepted part of the plan for these same self-appointed global elite to centralize political and ALL other control over all of the world.

The to-ing and fro-ing that the Eurofascist group, Open Europe "reports" on here is nothing more than window dressing -- Kabuki theatre.

The only way to stop a banking "union" and the domination by the self-appointed global elite is to destroy them thoroughly and for all time.